PERTH: 10 September 2013 - The Australian financial sector has expressed cautious optimism about the change of federal government, including the proposals for a sweeping financial system inquiry. The long-standing Coalition policy would be the first major review of the financial sector since the Wallis Inquiry of 1998. While most elements of the financial sector are calling for stability, others are urging the Coalition to wind back some controversial regulatory reforms introduced under the previous Labor government, including parts of the Future of Financial Advice (FOFA) regime.

The six years of Federal Labor government coincided with the onset of the global financial crisis, which ultimately became the defining theme of its tenure. The Labor leadership was defined by financial stimulus packages, crisis aversion and an over-arching regulatory restructure. Labor's response, while applauded overseas, was less popular at home due to the perceived excess of its fiscal stimulus and supposed knee-jerk regulation, such as the ban on short selling following the collapse of Lehman Brothers.

The Financial Planning Association (FPA) is hopeful the Coalition will lead to a review of the FOFA framework. These reforms began as a ban on conflicted remuneration but soon morphed into the most significant set of regulatory changes the financial advice sector had experienced. 

Mark Rantall, chief executive of the FPA, said the FPA would like to see the removal of the opt-in provisions, the simplification of fee disclosure statements, more flexibility to allow commissions on insurance inside superannuation and clarity on the best-interest duty to permit scaled advice.

"We acknowledge that it will take some time to settle into office and face into the reforms that need to be instigated. In time, we look forward to working with the new government," Rantall said. "Financial planning is of national importance and we want to continue to work with the leaders of this country to ensure more Australians have access to professional and trusted financial advice."

Rantall added that his organisation had worked well with senator Mathias Cormann while the Coalition was in opposition. He said the industry was now eagerly awaiting the announcement of the new minister for financial services and superannuation.

Seeking 'certainty and stability' 

John Brogden, chief executive of the Financial Services Council, said the mantra of certainty and stability would resonate well with the financial services sector. Brogden, who was once a state Liberal MP himself, characterised the past three years as a time of "policy uncertainty". He said the Australian financial sector needed to see stability from the incoming government, which would require support from the Senate.

"The election is over and business and consumers now demand certainty," he said. "Parliament must allow the new government to pass legislation within its mandate. If this mandate is blocked in the Senate, Australia will endure further uncertainty and instability."

The FSC, which represents Australia's retail and wholesale funds management industry, superannuation funds, life insurers, financial advice networks and trustee companies, said that further regulatory uncertainty would negatively affect consumer and business confidence.

The Association of Superannuation Funds of Australia (ASFA), meanwhile, is focusing on the future of the Stronger Super and MySuper reforms. These policy initiatives, which were put in place under Labor, are now left in a state of uncertainty following the resounding win for the Coalition.

Pauline Vamos, chief executive of ASFA, said the industry needed clarity on the implementation process of these policies under a Coalition government. "The timing of the election left many issues regarding the implementation of superannuation reforms unresolved. Ultimately, it is in fund members' best interests that implementation costs are minimised and that risks are managed in a prudent manner," Vamos said following the change of government.

ASFA said it also looked forward to the prospect of a "whole of financial system inquiry" under the Coalition. The previous review under the Wallis Inquiry led to the adoption of the "twin peaks" regulatory model in Australia. Vamos said there had been significant changes to the economy, society and financial structure since then. 

"We are in a new digital and global economic environment so it's time once again to look at the financial system in its entirety. In particular, when it comes to superannuation, we need to look at how the system can be adjusted to accommodate the ageing population and very different individual consumer expectations, as well as continuing to drive strength in the economy, including investment in assets such as infrastructure," she said.

Vamos said ASFA and its members would look forward to seeing the terms of reference for the inquiry, which would be critical.

Banking sector support

Within the banking sector there has been thinly veiled enthusiasm for the new government including — rather surprisingly — its plans for a sweeping financial sector review. The banks are hopeful that a review will lead to a winding back of regulation rather than a tightening up for the sector. 

The Australian Bankers' Association (ABA) strongly supported the incoming government's commitment to a moratorium on new financial regulation pending completion of the financial system review. Steven Münchenberg, its chief executive, conceded most reform was necessary but said it had come at considerable cost to financial institutions, particularly smaller banks with fewer resources to manage the changes.

"Some of this has been well thought through, and some not. Either way, the pace of new regulation has been incredible and has required constant change to bank systems and staff training," he said.

Münchenberg said the banking industry supported the overarching inquiry into the financial system, which had been a long-standing Coalition commitment.

"Our financial system has served Australia well over the last few years, but we must ensure that continues. We would want to see any inquiry as a forward-looking exercise, focusing on what sort of financial system we need to best serve the needs of the Australian people and the economy in coming years, what we need to do to achieve that and what might be the challenges," he said.

"The inquiry must focus on ensuring we have a banking system that meets the needs of household and business customers, shareholders, employees and the broader community. Meeting the needs of customers, including families and small businesses, must be central."

According to the ABA there will be a number of critical issues to address, including assessment of the impact of regulation on the stability of the system, testing claims about levels of competition, ensuring the banking system can continue to fund the economy and examining the effect of rapid technological change.

The ABA also views the inquiry as an opportunity to revisit the need for a Financial Stability Fund and levy, which had been announced by the previous government. Münchenberg said a time when the government was trying to encourage Australians to save for their retirement and for banks to increase their deposit funding, a new tax on deposits would be counterproductive.

Wholesale interests 

On the wholesale side, the Australian Financial Markets Association (AFMA) said the financial system inquiry foreshadowed by the incoming Treasurer, Joe Hockey, is without doubt the most significant Coalition policy proposal in relation to the financial sector. David Lynch, executive director of AFMA, said the inquiry was important for the broader economy because an efficient financial system is a vital contributor to economic growth and productivity. Lynch said this would also bolster savings and investment, payments and the management of risk.

"The inquiry will provide an opportunity to ensure we have the regulatory and tax settings to best support delivery of financial services to consumers and Australian business, taking account of factors like the growth of superannuation, global market integration and the anticipated increase in market-based financing," Lynch said.

AFMA agreed that the moratorium on significant new government-driven reforms was a welcome and necessary initiative while the inquiry is underway.

In the meantime, Lynch said the government would need to continue with key reforms that are already underway — for example, in relation to over-the-counter derivatives and the implementation measures for FOFA. 

"We expect further refinements will have to be made to make the [FOFA] regime work efficiently as things settle down. For instance, the effects of the current exclusion of REITs from the so-called stamping fees exemption from the conflicted remuneration ban is being considered by the industry," Lynch said.
 

"More broadly, the Coalition's commitment to reduce regulation and improve productivity should improve the policy formulation process and the regulation that it generates. For example, the proposal for mandatory regulatory impact statements would be a step forward," he added.

THIS ARTICLE WAS FIRST PUBLISHED BY THOMSON REUTERS ACCELUS COMPLIANCE COMPLETE AND IS REPRODUCED WITH PERMISSION